iots-10q_20160331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Commission File Number: 001-37582

 

ADESTO TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

16-1755067

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Adesto Technologies Corporation

1250 Borregas Avenue

Sunnyvale, CA 94089

(408) 400-0578

(Address and telephone number of Registrant’s executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuance to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

Large accelerated filer

o

 

 

Accelerated filer

o

 

 

 

 

 

 

Non-accelerated filer

x

    (Do not check if a smaller reporting company)

 

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Class

 

 

 

Outstanding at May 10, 2016

 

Common Stock, $0.0001 par value per share

 

14,980,271 shares

 

 

 

 


ADESTO TECHNOLOGIES CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

INDEX

 

 

 

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

 

3

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015

 

4

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and March 31, 2015

 

5

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2016 and March 31, 2015

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

 

 

 

 

 

Item 1A.

 

Risk Factors

 

33

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

49

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

49

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

49

 

 

 

 

 

Item 5.

 

Other Information

 

49

 

 

 

 

 

Item 6.

 

Exhibits

 

50

 

 

 

 

 

Signatures

 

51

 

 

 

 

 

Exhibit Index

 

52

 

 

 

 


PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

Adesto Technologies Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,170

 

 

$

23,089

 

Accounts receivable, net

 

 

5,417

 

 

 

6,536

 

Inventories

 

 

8,579

 

 

 

7,368

 

Prepaid expenses

 

 

1,006

 

 

 

1,155

 

Other current assets

 

 

1,202

 

 

 

1,186

 

Total current assets

 

 

35,374

 

 

 

39,334

 

Property and equipment, net

 

 

1,029

 

 

 

909

 

Intangible assets, net

 

 

9,250

 

 

 

9,559

 

Other non-current assets

 

 

115

 

 

 

114

 

Goodwill

 

 

22

 

 

 

22

 

Total assets

 

$

45,790

 

 

$

49,938

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,034

 

 

$

9,680

 

Income taxes payable

 

 

66

 

 

 

52

 

Accrued compensation and benefits

 

 

1,247

 

 

 

893

 

Accrued expenses and other current liabilities

 

 

1,669

 

 

 

1,413

 

Term loan, current

 

 

5,660

 

 

 

5,606

 

Total current liabilities

 

 

15,676

 

 

 

17,644

 

Term loan

 

 

6,378

 

 

 

7,814

 

Deferred tax liability, non-current

 

 

1

 

 

 

1

 

Total liabilities

 

 

22,055

 

 

 

25,459

 

Commitments and contingencies (See Note 7)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized as of March 31, 2016

   and December 31, 2015; 14,974,718 shares issued and outstanding as of March 31, 2016

   and December 31, 2015, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

107,976

 

 

 

107,167

 

Accumulated other comprehensive loss

 

 

(159

)

 

 

(146

)

Accumulated deficit

 

 

(84,084

)

 

 

(82,544

)

Total stockholders' equity

 

 

23,735

 

 

 

24,479

 

Total liabilities and stockholders' equity

 

$

45,790

 

 

$

49,938

 

 

(1)

The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated financial statements as of that date.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

3


Adesto Technologies Corporation

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenue

 

$

10,176

 

 

 

9,690

 

Cost of revenue

 

 

5,180

 

 

 

5,830

 

Gross profit

 

 

4,996

 

 

 

3,860

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,937

 

 

 

2,964

 

Sales and marketing

 

 

2,603

 

 

 

1,977

 

General and administrative

 

 

1,708

 

 

 

848

 

Gain from settlement with former foundry supplier

 

 

(1,962

)

 

 

-

 

Total operating expenses

 

 

6,286

 

 

 

5,789

 

Loss from operations

 

 

(1,290

)

 

 

(1,929

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(258

)

 

 

(181

)

Other income (expense), net

 

 

22

 

 

 

(118

)

Total other income (expense), net

 

 

(236

)

 

 

(299

)

Loss before provision for  income taxes

 

 

(1,526

)

 

 

(2,228

)

Provision for  income taxes

 

 

14

 

 

 

49

 

Net loss

 

$

(1,540

)

 

 

(2,277

)

Net loss per share

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.10

)

 

$

(4.07

)

Weighted average number of shares used in computing net loss per share

 

 

 

 

 

 

 

 

Basic and diluted

 

 

14,974,718

 

 

 

559,554

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

4


Adesto Technologies Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Net loss

 

$

(1,540

)

 

$

(2,277

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(13

)

 

 

(209

)

Comprehensive loss, net of tax

 

$

(1,553

)

 

$

(2,486

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


Adesto Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,540

)

 

$

(2,277

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

809

 

 

 

42

 

Depreciation and amortization

 

 

230

 

 

 

431

 

Amortization of intangible assets

 

 

309

 

 

 

309

 

Amortization of debt discount

 

 

118

 

 

 

26

 

Deferred income taxes

 

 

 

 

 

3

 

Gain from settelment with former foundry supplier

 

 

(1,962

)

 

 

 

Changes in fair value of preferred stock warrant liability

 

 

 

 

 

(9

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,119

 

 

 

(611

)

Inventories

 

 

(1,211

)

 

 

1,373

 

Prepaid expenses and other current assets

 

 

137

 

 

 

(457

)

Accounts payable

 

 

(684

)

 

 

1,228

 

Income tax payable

 

 

14

 

 

 

 

Accrued compensation and benefits

 

 

354

 

 

 

75

 

Accrued expenses and other liabilities

 

 

256

 

 

 

163

 

Net cash provided by (used in) operating activities

 

 

(2,051

)

 

 

296

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(350

)

 

 

(31

)

Net cash used in investing activities

 

 

(350

)

 

 

(31

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments on revolving line of credit

 

 

 

 

 

(608

)

Payments on term loan

 

 

(1,500

)

 

 

(900

)

Net cash used in financing activities

 

 

(1,500

)

 

 

(1,508

)

Effect of exchange rates on cash and equivalents

 

 

(18

)

 

 

(175

)

Net decrease in cash and cash equivalents

 

 

(3,919

)

 

 

(1,418

)

Cash and cash equivalents - beginning of period

 

 

23,089

 

 

 

5,972

 

Cash and cash equivalents - end of period

 

$

19,170

 

 

$

4,554

 

Supplemental disclosures of other cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

272

 

 

$

164

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


 

Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Note 1. Organization and Summary of Significant Accounting Policies.

Organization and Nature of Operations.

Adesto Technologies Corporation (together with its subsidiaries; “Adesto”, “we”, “our”, “us” or the “Company”) was incorporated in the state of California in January 2006 and reincorporated in Delaware in October 2015. We are a leading provider of application-specific and ultra-low power non-volatile memory (“NVM”) products. Our corporate headquarters are located in Sunnyvale, California.

On September 28, 2012, we purchased certain flash memory product assets from Atmel Corporation and our financial results include the operating results of those assets from the date of acquisition.

The Company completed its initial public offering (“IPO”) of common stock on October 30, 2015. The Company sold 5,192,184 shares, including 192,184 shares for the underwriters’ option to purchase additional shares. The shares were sold at an initial public offering price of $5.00 per share for net proceeds of $22.1 million to the Company, after deducting underwriting discounts and commissions and offering expenses.

Basis of Presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to complete annual financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, for any other interim period or for any other future year.

The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 30, 2016.

The consolidated financial statements include the results of our operations, and the operations of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

There have been no material changes to our significant accounting policies described in Note 1, Organization and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2015 that have had a material impact on our condensed consolidated financial statements and related notes, except as described below.

 

Reverse Stock Split.

On October 1, 2015, we effected a 1-for-33 reverse stock split of our common stock and convertible preferred stock (collectively, “Capital Stock”). On the effective date of the reverse stock split, (i) each 33 shares of outstanding Capital Stock were reduced to one share of Capital Stock; (ii) the number of shares of Capital Stock into which each outstanding warrant or option to purchase Capital Stock is exercisable were proportionately reduced on a 33-to-1 basis; (iii) the exercise price of each outstanding warrant or option to purchase Capital Stock were proportionately increased on a 1-to-33 basis; and (iv) each 33 shares of authorized Capital Stock were reduced to one share of Capital Stock. All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-33 reverse stock split. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split.

Use of Estimates.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and related disclosures of

7


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful accounts, reserves for sales, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Revenue Recognition and Accounts Receivable Allowances.

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, transfer of title occurs, and the collectibility of the resulting receivable is reasonably assured. Due to the historical immaterial level of product returns under warranty, we do not record a reserve for estimated returns under warranty at the time of revenue recognition.

Generally, we meet product sale revenue recognition conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, we estimate and record provisions for future returns and other charges against revenue at the time of shipment, consistent with the terms of sale. We sell products to distributors at the price listed in our distributor price book. At the time of sale, we record a sales reserve for ship from stock and debits (“SSDs”), stock rotation rights and any special programs approved by management. We offset the sales reserve against recorded revenues, producing the revenue amount reported in our consolidated statements of operations.

The market price for our products can differ significantly from the book price at which we sold the product to the distributor. When the market price of a particular distributor’s sales opportunity to their customers would result in low or negative margins for the distributor, as compared to our original book price, we negotiate SSDs with the distributor. Management analyzes our SSD history to develop current SSD rates that form the basis of the SSD revenue reserve recorded each period. We obtain the historical SSD rates from the distributor’s records and our internal records.

We typically grant payment terms of between 30 and 60 days to our customers. Our customers generally pay within those terms. Distributors are invoiced for shipments at listed book price. When the distributors pay the invoice, they may claim debits for SSDs previously authorized by us when appropriate. Once claimed, we process the requests against prior authorizations and adjust reserves previously established for that customer.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. Determining net revenue requires significant judgments and estimates on our part. We base our estimates on historical experience rates, the levels of inventory held by our distributors, current trends and other related factors. Because of the inherent nature of estimates, there is a risk actual amounts may differ materially from our estimates. Our consolidated financial condition and operating results depend on our ability to make reliable estimates. We believe that such estimates are reasonable.

We also monitor collectibility of accounts receivable primarily through review of our accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, we assess the impact on amounts recorded for bad debts and, if necessary, record a charge in the period such determination is made. As of March 31, 2016 and December 31, 2015, there was no allowance for doubtful accounts.

Shipping Costs.

We charge shipping costs to cost of revenue as incurred.

Product Warranty.

Our products are sold with a limited warranty for a period of one year, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, we have had insignificant returns of any defective production parts. During the year ended December 31, 2015, we recorded $250,000 for a specific potential warranty claim. As of March 31, 2016, approximately $41,000 has been incurred relating to this potential warranty claim.

8


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Income Taxes.

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary when in management’s estimate, based on available objective evidence, it is more likely than not that we will not generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. We include interest and penalties related to unrecognized tax benefits in income tax expense. We recognize in our consolidated financial statements the impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination.

Foreign Currency Translation.

The functional currency of our foreign subsidiaries is the local currency. In consolidation, we translate assets and liabilities at exchange rates in effect at the consolidated balance sheet date. We translate revenue and expense accounts at the average exchange rates during the period in which the transaction takes place. Net gains or losses from foreign currency translation of assets and liabilities were a loss of $13,000  and a loss of $0.2 million for the  three months ended March 31, 2016 and 2015, respectively, and are included in the cumulative translation adjustment component of accumulated other comprehensive loss, net of tax, a component of stockholders’ equity. Net gains and losses arising from transactions denominated in currencies other than the functional currency were a $22,000 gain and a $0.1 million loss for the three months ended March 31, 2016 and 2015, respectively, and are included in other income (expense), net.

Cash and Cash Equivalents.

We consider all highly liquid investments with an initial maturity of 90 days or less at the date of purchase to be cash equivalents. We maintain such funds in overnight cash deposits.

Property and Equipment.

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the related lease, whichever is shorter. Estimates of useful lives are as follows:

 

 

 

Estimated useful lives

Machinery and equipment

 

2-5 years

Furniture and fixtures

 

3 years

Leasehold improvements

 

Shorter of lease term or 5 years

Computer software

 

3 years

 

Inventories.

We record inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. On a quarterly basis, we analyze inventories on a part-by-part basis. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material effect on our results of operations.

Long-Lived Assets.

We evaluate our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We recognize an impairment loss when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the asset. If impairment is indicated, we write the asset down to its estimated fair value. For all periods presented, we have not recognized any impairment losses on our long-lived assets.

9


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Purchased Intangible Assets.

Purchased intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets as follows:

 

 

 

Years

 

Developed technology

 

 

10

 

Customer relationships

 

 

12

 

Customer backlog

 

 

1

 

Non-compete agreement

 

 

5

 

 

Goodwill.

Goodwill represents the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.

We evaluate our goodwill, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We perform our annual goodwill impairment test as of November 1 of each year.  We last conducted our annual goodwill impairment analysis in the fourth quarter of 2015 and no goodwill impairment was indicated.

When evaluating goodwill for impairment, we may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting unit’s fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, we continue to the first step of two steps impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting unit is determined based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. We base these fair value estimates on reasonable assumptions that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that we determine that the value of goodwill has become impaired, we record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We operate in one reporting unit.  

Research and Development Expenses.

Research and development expenditures are expensed as incurred.

Stock-based Compensation.

We account for stock-based compensation using the fair value method. We determine fair value for stock options awarded to employees at the grant date using the Black-Scholes option-pricing model, which requires us to make various assumptions, including the fair value of the underlying common stock, expected future share price volatility and expected term. We determine the fair value of stock options awarded to non-employees at each vesting date using the Black-Scholes option-pricing model, and re-measure fair value at each reporting period until the services required under the arrangement are completed. Fair value is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. We are required to estimate the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from our estimate, stock-based compensation expense in future periods could be significantly different from what was recorded in the current period.

 

10


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Concentration of Risk.

Our products are primarily manufactured, assembled and tested by third-party foundries and other contractors in Asia and we are heavily dependent on a single foundry in Taiwan for the manufacture of wafers and a single contractor in the Philippines for assembly and testing of our products. We do not have long-term agreements with either of these suppliers. A significant disruption in the operations of these parties would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivables. We place substantially all of our cash and cash equivalents on deposit with a reputable, high credit quality financial institution in the United States of America. We believe that the bank that holds substantially all of our cash and cash equivalents is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the bank may exceed the amount of insurance provided on such deposits.

We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. As a result of our favorable collection experience and customer concentration, there was no allowance for doubtful accounts as of March 31, 2016 and December 31, 2015.

Customer concentrations as a percentage of total revenue were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Customer A

 

 

16

%

 

 

17

%

Customer B

 

 

14

%

 

*

 

Customer C

 

 

11

%

 

*

 

 

*

less than 10%

Customer concentrations as a percentage of gross accounts receivable were as follows:

 

 

 

March 31,

 

 

March 31,

 

 

 

2016

 

 

2015

 

Customer A

 

 

17

%

 

 

21

%

Customer B

 

 

15

%

 

 

19

%

Customer C

 

 

12

%

 

 

11

%

 

*

less than 10%

Net Loss per Share.

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and potentially dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock options, restricted stock units, and warrants are considered to be potentially dilutive securities.

Loss Contingencies.

We are or have been subject to claims arising in the ordinary course of business. We evaluate contingent liabilities, including threatened or pending litigation, for potential losses. If the potential loss from any claim or legal proceedings is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based upon the best information available. For potential losses for which there is a reasonable possibility (meaning the likelihood is more than remote but less than probable) that a loss exists, we will disclose an estimate of the potential loss or range of such potential loss or include a statement that an estimate of the potential loss cannot be made. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates, which could materially impact our consolidated financial statements.

11


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Recent Accounting Pronouncements.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The amendments require management to perform interim and annual assessments of an entity’s ability to continue as a going concern and provide guidance on determining when and how to disclose going concern uncertainties in the financial statements. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. We are currently evaluating the impact that this new guidance will have on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which simplifies the presentation of debt issuance costs. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted. We adopted this guidance on our consolidated financial statements with no effect in the first three months of 2016.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, amending Accounting Standards Codification (“ASC 740”). Upon adoption, this topic supersedes the existing guidance under ASC 740 and aims to simplify the accounting for income taxes. Currently, U.S. GAAP requires an entity to separate deferred income tax assets and liabilities into current and noncurrent amounts in a classified statement of financial position. This amendment requires that deferred tax assets and liabilities be classified as noncurrent. This ASU is effective for annual periods beginning after December 15, 2016 (including interim reporting periods within those periods), or the first quarter 2017 for Adesto. We early adopted this ASU at the beginning of our fourth quarter of 2015 and applied it prospectively. No prior periods were retrospectively adjusted.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, amending ASC 330. Upon adoption, this topic supersedes the existing guidance under ASC 330 and aims to simplify the subsequent measurement of inventory. Currently, inventory can be measured at the lower of cost or market, which could result in several potential outcomes, as market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. The major amendments would be as follows: 1. Inventory should be measured at the lower of cost or net realizable value. 2. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. 3. The amendment does not apply to inventory measured under LIFO or the retail inventory method. 4. The amendment does apply to all other inventory, which includes inventory measured via FIFO or average cost. We plan to adopt this guidance effective for periods beginning after December 15, 2016 (including interim reporting periods within those fiscal years), or the first quarter of 2017, and do not expect it to have a material effect on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, creating ASC Topic 606. Upon adoption, this topic supersedes the existing guidance under ASC 605 and aims to simplify the number of requirements to follow for revenue recognition and make revenue recognition more comparable across various entities, industries, jurisdictions and capital markets. There are 5 core principles: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Additional considerations under this update include: accounting for costs to obtain or fulfill a contract with a customer and additional quantitative and qualitative disclosures. We plan to adopt this guidance effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lease assets and lease liabilities arising from leases, including operating leases, to be recognized on the balance sheet, ASU 2016-02 will become effective for us on January 1, 2019. We are currently evaluating the impact of this guidance on our consolidated financial statements.

 

 

 

12


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Note 2. Balance Sheet Components.

Accounts Receivable, Net.

Accounts receivable, net consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accounts receivable

 

$

9,128

 

 

$

10,936

 

Allowance for SSD, price protection, right of return and other

   activities

 

 

(3,711

)

 

 

(4,400

)

Total accounts receivable, net

 

$

5,417

 

 

$

6,536

 

 

Inventories.

Inventories consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Raw materials

 

$

1,307

 

 

$

1,149

 

Work-in-process

 

 

5,842

 

 

 

4,844

 

Finished goods

 

 

1,430

 

 

 

1,375

 

Total inventories

 

$

8,579

 

 

$

7,368

 

 

 For the three months ended March 31, 2016 and 2015 we realized benefits of $0.1 million and $0.7 million, respectively, from the sales of previously reserved products.

Other current assets.

Other current assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Foreign research credit receivable

 

$

1,069

 

 

$

1,063

 

Other current assets

 

 

133

 

 

 

123

 

Total other current assets

 

$

1,202

 

 

$

1,186

 

 

Property and Equipment, Net.

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Machinery and equipment

 

$

6,939

 

 

$

6,627

 

Furniture and fixtures

 

 

77

 

 

 

77

 

Leasehold improvements

 

 

141

 

 

 

141

 

Computer software

 

 

668

 

 

 

668

 

Construction in progress

 

 

90

 

 

 

52

 

Property and equipment, at cost

 

 

7,915

 

 

 

7,565

 

Accumulated depreciation and amortization

 

 

(6,886

)

 

 

(6,656

)

Property and equipment, net

 

$

1,029

 

 

$

909

 

 

Depreciation and amortization expense of property and equipment for the three months ended March 31, 2016 and 2015 was $0.2 million and $0.4 million, respectively.

13


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Accrued Expenses and Other Current Liabilities.

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued sales commission payable

 

$

326

 

 

$

300

 

Accrued manufacturing expenses

 

 

314

 

 

 

271

 

Deferred rent

 

 

475

 

 

 

196

 

Other accrued liabilities

 

 

554

 

 

 

646

 

Total accrued expenses and other current liabilities

 

$

1,669

 

 

$

1,413

 

 

 

Note 3. Fair Value Measurements.

Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2 . Quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3. Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.

Financial assets measured at fair value on a recurring basis were as follows:

 

 

Fair Value Measurement at Reporting Date Using

 

 

 

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

 

(in thousands)

 

As of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

17,021

 

 

$

 

 

$

17,021

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

20,007

 

 

$

 

 

$

20,007

 

 

As of March 31, 2016 and December 31, 2015, we had no financial liabilities measured at fair value on a recurring basis.

 

 

Note 4. Purchased Intangible Assets.

In 2012, in connection with our purchase of the serial flash memory product line assets from Atmel Corporation, we recorded $16.4 million of intangible assets.

14


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Intangible assets were as follows (in thousands):

 

 

 

March 31, 2016

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

 

 

(unaudited)

 

Developed technology

 

$

4,282

 

 

$

1,499

 

 

$

2,783

 

Customer relationships

 

 

9,011

 

 

 

2,628

 

 

 

6,383

 

Customer backlog

 

 

2,779

 

 

 

2,779

 

 

 

 

Non-compete agreement

 

 

282

 

 

 

198

 

 

 

84

 

Total intangible assets subject to amortization

 

$

16,354

 

 

$

7,104

 

 

$

9,250

 

 

 

 

December 31, 2015

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Developed technology

 

$

4,282

 

 

$

1,392

 

 

$

2,890

 

Customer relationships

 

 

9,011

 

 

 

2,440

 

 

 

6,571

 

Customer backlog

 

 

2,779

 

 

 

2,779

 

 

 

 

Non-compete agreement

 

 

282

 

 

 

184

 

 

 

98

 

Total intangible assets subject to amortization

 

$

16,354

 

 

$

6,795

 

 

$

9,559

 

 

We recorded amortization expense related to the acquisition-related intangible assets as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

Operating expense category:

 

 

 

 

 

 

 

 

Research and development

 

$

121

 

 

$

121

 

Sales and marketing

 

 

188

 

 

 

188

 

Total

 

$

309

 

 

$

309

 

 

The estimated future amortization expense of acquisition-related intangible assets subject to amortization after March 31, 2016 is as follows (in thousands):

 

Year Ended December 31,

 

 

 

 

2016 (remaining 9 months)

 

$

927

 

2017

 

 

1,221

 

2018

 

 

1,179

 

2019

 

 

1,179

 

2020

 

 

1,179

 

Thereafter

 

 

3,565

 

Total

 

$

9,250

 

 

 

Note 5. Borrowings.

Bridge Bank Loan.

In October 2013, we entered into the Business Financing Agreement (the “BFA”) with Bridge Bank N.A. The BFA consisted of both a revolving credit facility under which we were permitted to borrow up to 80% of eligible accounts receivable but not to exceed $7.5 million and a term loan in the amount of $9.0 million. Interest on the revolving credit facility accrued at the bank’s prime rate, which under the BFA could not have been less than 3.25%, plus 1.25% while interest on the term loan accrues at the bank’s prime rate plus 3%. Under the term loan, we were required to make interest only payments through April 2014 and principal payments of $300,000 monthly thereafter plus interest. Borrowings under the BFA were secured by all of our assets and were subject to certain financial covenants, including maintaining minimum levels of EBITDA on a quarterly basis and a certain minimum asset coverage ratio based on the ratio of unrestricted cash plus certain accounts receivable to total outstanding under the agreement.

15


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

In October 2014, we were not in compliance with certain financial covenants. As a result, in October 2014, we entered into the First Business Financing Modification Agreement (the “BFA Modification”) under which the covenant defaults were waived. The BFA Modification (i) increased the interest rate charged on the term loan from the bank’s prime rate plus 3% to the bank’s prime rate plus 4% and would have declined to the bank’s prime rate plus 3% upon the raising of additional equity of not less than $2.5 million, (ii) required us to continue to maintain certain minimum levels of EBITDA and asset coverage ratios, (iii) required us to maintain unrestricted cash of not less than $4.25 million until that point at which we either receive additional equity of not less than $5.0 million or maintain a debt service coverage ratio of not less than 1.00 to 1.00 (based on the ratio of EBITDA to current portion of total amounts outstanding under the BFA Modification plus period-to-date interest expense payments) for two consecutive quarters.

In addition, under the BFA the bank was paid a facility fee of $82,500 at closing. Under the BFA Modification, the bank was paid an additional facility fee of $50,000 and received a warrant to purchase 1,488 shares of our Series E convertible preferred stock. The facility fees and the value of the warrant, $0.1 million, were recorded as a debt discount and have been amortized over the life of the agreement. Amortization of debt discount was $0.1 million in 2015. 

 Borrowings of $10.9 million under this facility were repaid in full in April 2015.

Opus Bank Term Loan.

In April 2015, we entered into a three-year $15.0 million credit agreement, or the new term loan facility, which replaced our prior senior secured revolving credit and term loan facility. The agreement provides for a senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest will accrue on any outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash equivalents are greater than 125% of the outstanding principal of our borrowings under the new term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to 125% of such borrowings. Indebtedness we incur under this agreement is secured by substantially all of our assets and contains financial covenants requiring us to maintain a monthly asset coverage ratio after September 30, 2015 of not less than 1.10 to 1.00, and quarterly adjusted EBITDA (measured on a trailing three-month basis) of $1 through March 31, 2016 and increasing to higher levels thereafter. Under the agreement, the quarterly EBITDA covenant is not applicable if the asset coverage ratio is met at all times during any particular quarter. The agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of five percent above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. As of March 31, 2016, we were in compliance with all financial covenants and restrictions and had borrowings of $12.5 million outstanding. We may not draw additional funds under the new term loan facility and our borrowings mature on April 30, 2018.

In connection with the new term loan facility, Opus Bank received a warrant to purchase 31,897 shares of Series E convertible preferred stock. Upon the completion of our IPO on October 30, 2015 the preferred stock warrants were converted into 315,282 of our common stock warrants. In addition, we paid financing costs of $0.1 million. The financing costs and the value of the warrant, $0.9 million, were recorded as a debt discount and are being amortized over the life of the agreement. Amortization of debt discount was $0.1 million for the three months ended in March 31, 2016. As of March 31, 2016, the remaining unamortized debt discount was $0.5 million.

Outstanding borrowings consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Term loan, current

 

$

5,660

 

 

$

5,606

 

Term loan, non-current

 

 

6,378

 

 

 

7,814

 

Total

 

$

12,038

 

 

$

13,420

 

 

16


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Future repayments on outstanding borrowings (excluding unamortized discount of $0.5 million as of March 31, 2016) are as follows (in thousands):

 

Year ending December 31,

 

 

 

 

2016 (remaining 9 months)

 

$

4,500

 

2017

 

 

6,000

 

2018

 

 

2,000

 

 

 

$

12,500

 

 

Interest expense incurred under our borrowings was $0.3 million and $0.2 million for the three months ended March 31, 2016 and March 31, 2015, respectively.  

 

 

Note 6. Segment Information.

We operate in one business segment, application-specific and feature-rich, ultra-low power NVM products. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results. Revenue is evaluated based on product category and by geographic region.

Product revenue from customers is designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

United States

 

$

1,710

 

 

$

2,174

 

Rest of Americas

 

 

204

 

 

 

158

 

Europe

 

 

1,544

 

 

 

1,470

 

Asia Pacific

 

 

6,598

 

 

 

5,789

 

Rest of world

 

 

120

 

 

 

99

 

Total

 

$

10,176

 

 

$

9,690

 

 

Long-lived assets are attributed to the geographic region were they are located. Long-lived assets by geographic region were as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

 

 

 

United States

 

$

398

 

 

$

369

 

Asia Pacific

 

 

629

 

 

 

538

 

Europe

 

 

2

 

 

 

2

 

Total property and equipment, net

 

$

1,029

 

 

$

909

 

 

 

Note 7. Commitments and Contingencies.

Operating Leases.

On November 2, 2015, the Company extended the lease for its headquarters by six months to July 2016 by entering into that certain Amendment to Commercial Sublease, dated November 2, 2015, between the Company and eGain Corporation. The Amendment provides for a base rent during the extension period of $47,087 per month.

Additionally, on November 2, 2015, the Company entered into a lease with Peterson Ridge LLC pursuant to which the Company has leased a new headquarters facility, consisting of an aggregate of approximately 34,000 square feet of space in Santa Clara, California. The initial term of the lease commenced on November 2, 2015 and is scheduled to end on July 31, 2023 and may be extended, at the Company’s option, for an additional five-year period following the initial lease term.

17


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Pursuant to the lease, monthly base rental payments due under the lease are expected to be approximately $93,000 per month between August 1, 2016 and February 27, 2017, with annual increases of approximately 3% thereafter. The Company must also pay for certain other operating costs under the lease, including operating expenses, taxes, assessments, insurance, utilities, securities and property management fees. Peterson Ridge LLC is obligated to reimburse the Company for up to $2,521,051 of the Company’s out-of-pocket costs associated with any tenant improvements, as defined in the lease.

Rent expense under operating leases for three months ended March 31, 2016 was $0.5 million.  

 

 

 

Total

 

 

Remaining 2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

Thereafter

 

 

 

(in thousands)

 

Operating leases

 

$

8,897

 

 

$

699

 

 

$

1,154

 

 

$

1,177

 

 

$

1,213

 

 

$

1,249

 

 

$

3,405

 

 

Capital Leases.

We have entered into various lease agreements for equipment and software under capital leases with terms of between 24 to 48 months. The equipment and software under the leases are collateral for the lease obligations and are included within property and equipment, net, on the condensed consolidated balance sheets. Future minimum commitments for capital leases as of March 31, 2016 are as follows (in thousands):

 

Payments due remainder of 2016

 

$

9

 

Total minimum lease payments

 

 

9

 

Less: Amounts representing interest

 

 

(1

)

Present value of capital lease obligations and current portion of

   capital lease obligations

 

$

8

 

 

Obligations under capital leases are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Equipment acquired under capital leases is included in property and equipment, net and consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

 

 

 

Computer software

 

$

108

 

 

$

108

 

Office equipment

 

 

49

 

 

 

49

 

Production equipment

 

 

44

 

 

 

44

 

Total

 

 

201

 

 

 

201

 

Accumulated depreciation and amortization

 

 

(198

)

 

 

(189

)

Property and equipment, net

 

$

3

 

 

$

12

 

 

Purchase Commitments.

As of March 31, 2016 we had purchase commitments due within one year with our third-party foundries of $3.6 million and $3.0 million in conjunction with an agreement with TowerJazz Panasonic Semiconductor Company.

Litigation.

Although we are not currently subject to any litigation, and no litigation is currently threatened against us, we may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable

18


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Indemnification.

During the normal course of business, we may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of our customers in connection with the sales of our products and indemnities for liabilities associated with the infringement of other parties’ technology based upon our products. Our exposure under these indemnification provisions is generally limited to the total amount paid by a customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in such capacities.

We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. Where necessary, we accrue for losses for any known contingent liabilities, including those that may arise from indemnification provisions, when future payment is probable.

 

 

Note 8. Common Stock, Common Stock Warrants and Stock Option Plan.

Common Stock.

We were authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share as of December 31, 2015 and 6,666,666 shares of common stock with no par value per share as of December 31, 2014. Each holder of common stock is entitled to one vote per share. The holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors.

Common Stock Reserved for Future Issuance.

As of March 31, 2016 and December 31, 2015, we had reserved shares of common stock for future issuances as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Warrants to purchase common stock

 

 

411,514

 

 

 

411,514

 

Stock option plan:

 

 

 

 

 

 

 

 

Options outstanding

 

 

793,416

 

 

 

796,356

 

Options available for future grants

 

 

1,817,786

 

 

 

1,814,846

 

Shares available for ESPP

 

 

149,747

 

 

 

149,747

 

Total

 

 

3,172,463

 

 

 

3,172,463

 

 

Upon completion of our IPO on October 30, 2015 all outstanding shares of our preferred stock were converted into 9,114,739 shares of common stock.

Common Stock Warrants.

The following common stock warrants were outstanding as of March 31, 2016 and December 31, 2015 and were the result of a conversion of preferred stock warrants upon the completion of our IPO on October 30, 2015.

 

Total amount of securities issuable

under the outstanding warrants

 

 

Exercise Price

 

 

Issuance Date

 

Expiration Date

 

7,378

 

 

$

12.20

 

 

2010

 

2017

 

74,141

 

 

$

31.35

 

 

2012-2013

 

2019

 

329,995

 

 

$

2.38

 

 

2014-2015

 

2022-2024

 

411,514

 

 

 

 

 

 

 

 

 

 

 

Common stock warrants are exercisable at the option of the holder any time after the date of issuance into shares of our common stock. The aggregate amount of shares of common stock that would be issued is determined by dividing the exercisable price by the conversion price applicable on the date of conversion multiplied by the number of warrants exercised.

19


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

Employee Benefit Plans

2007 Equity Incentive Plan.

In 2007, our Board of Directors and shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) under which 272,727 shares of common stock were reserved and available for the issuance of stock options and restricted stock to eligible participants. The 2007 Plan was subsequently amended to increase the number of shares of common stock reserved for issuance under the 2007 Plan to 787,878 and during the year ended December 31, 2015, the number of shares reserved for issuance under the 2007 Plan was increased to 2,651,515. Options and restricted stock awards were granted at a price per share not less than the 85% of the fair value at the date of grant or award, respectively. Restricted stock awarded to persons controlling more than 10% of our stock were granted at a price per share not less than the 100% of the fair value at the date of the award. Options that were granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining to vest monthly thereafter, while options that were granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years from the date of grant. As of October 26, 2015, no shares were available for grant under the 2007 Plan and all outstanding options continue to be governed and remain outstanding in accordance with their existing terms under the 2007 Plan. In addition, any shares subject to outstanding awards under the 2007 Plan that are issuable upon the exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for future grant and issuance under the 2015 Plan (as defined below).

2015 Equity Incentive Plan

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan became effective on the date immediately prior to the date of our initial public offering. As a result, 1,813,272 shares of common stock previously reserved but unissued under the 2007 Plan on the effective date of the 2015 Equity Incentive Plan became reserved for issuance under our 2015 Equity Incentive Plan, and we ceased granting awards under our 2007 Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on the first day of January of each of 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our Board of Directors may reduce the amount of the increase in any particular year.

Our 2015 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSU’s”), performance awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 4,000,000 shares under the plan in the calendar year in which the employee commences employment. The aggregate number of shares of our common stock that may be subject to awards granted to any single non-employee director pursuant to the 2015 Equity Incentive Plan in any calendar year shall not exceed 300,000. Our 2015 Equity Incentive Plan provides that no more than 25,000,000 shares will be issued as incentive stock options.

2015 Employee Stock Purchase Plan

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Employee Stock Purchase Plan (“ESPP”). The 2015 Employee Stock Purchase Plan became effective on the date of our initial public offering. We reserved 150,000 shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on the first day of January following the first offering date by the number of shares equal to 1% of the total outstanding shares of our common stock as of the immediately preceding December 31 (rounded to the nearest whole share). However, our Board of Directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed 2,250,000 shares of our common stock.

Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Eligible employees will be able to select a rate of payroll deduction up to 15% of their base cash compensation. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. Except for the first offering period, each offering period will run for no more than six months, with purchases occurring every six months. The first offering period began upon the effective date of our IPO and will end on June 30, 2016.

No participant will have the right to purchase shares of our common stock in an amount that has a fair market value greater than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In

20


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

 

addition, no participant will be permitted to purchase more than 2,500 shares during any one purchase period or a lesser amount as determined by our compensation committee.

Our 2015 Employee Stock Purchase Plan will continue until the earlier to occur of its termination by our Board of Directors, the issuance of all shares reserved for issuance under it or the tenth anniversary of its effective date.

A summary of stock option and restricted stock units activity under the 2007 Plan and the 2015 Plan is as follows:

 

 

 

Stock Options

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining Contractual

Term (Years)

 

 

Aggregrate Instrinsic

Value

 

 

 

(aggregate intrinsic value in thousands)

 

Outstanding as of December 31, 2013

 

 

565,265

 

 

$

3.60

 

 

 

5.9

 

 

$

 

Granted

 

 

110,085

 

 

 

1.65